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HK edition / 2022-10 / 28 / Page022

Blockchain awaits GBA data interfaces

By Chai Hua and Zhang Tianyuan | HK EDITION | Updated: 2022-10-28 08:14

Blockchain promises digital data integrity. Industry standardization and protocols are still nascent. The high investment required inhibits the private sector. A platform approach may reduce entry costs. Local governments need to facilitate seamless data exchanges across the Greater Bay Area. Chai Hua and Zhang Tianyuan report from Hong Kong.

Industry pundits believe the Guangdong-Hong Kong-Macao Greater Bay Area has the converging need and scale to become a cradle for blockchain development. It is the industrial powerhouse of China, with well-established global export-import conduits. The challenge is for the regions and cities of the Greater Bay Area to interface cross-border blockchain protocols, to boost wider commercial usage.

Chief Executive John Lee Ka-chiu's maiden policy address vowed to "open up data and encourage public and private organizations to follow suit for innovative industry applications."

Blockchain technology comprises several types. Public blockchains, which cryptocurrencies are based on, are accessible to anyone with an internet connection. Private blockchains generally serve corporate software solutions.

A hybrid of the two is the consortium blockchain. Organizations with common goals in a particular industry can use the consortium blockchain to improve transparency, accountability, and data exchange.

Integration priority

Liu Guohong, director of the Finance and Modern Industry Research Center at the China Development Institute, believes the development of consortium blockchain in the Greater Bay Area is accelerating for takeoff.

"The integration of the Greater Bay Area requires frequent data exchanges across borders. Two systems and three jurisdictions concentrated in one area with a large economy, population, and complicated industry structures have created practical demand for an innovative solution to break down barriers," said Liu, noting that a consortium blockchain could provide such solutions.

The different legal, customs, and commercial regimes in the triangular structure of the Greater Bay Area could stymie cross-border projects. However, Liu sees this as an opportunity for blockchain applications to enable the seamless sharing of document data across different systems.

The CDI records that one-third of national patent-for-invention blockchain applications were generated in the Greater Bay Area, which also registered 756 blockchain research papers on the Web of Science from 2016 to 2021. That compares with about 100 for the San Francisco Bay Area, and under 100 for the New York Bay Area, during the same period.

Of the seven Chinese companies ranked in the Forbes Top 50 blockchain list in 2022, three are from the Greater Bay Area.

Faster goods release

Global Shipping Business Network, a nonprofit data exchange platform established in 2021 in Hong Kong, set up a pilot blockchain program in September to provide verified shipping data to banks, so that enterprises can get approval of loan applications quickly.

The GSBN resolves supply-chain kinks by leveraging blockchain technology. Shipping lines and port operators around the world, including those in Hong Kong, Shenzhen, Singapore and Thailand, have joined its network.

"Blockchain enables better document data exchange online between shipping agents, customs authorities, terminal operators, importers, and truckers transporting the goods," said Bertrand Chen, CEO of GSBN.

Chen said all parties involved in the supply chain "can share data digitally for faster and safer goods release, as all the information is captured on the blockchain". It can help reduce the entire processing time from days to hours.

Martyn Huckerby, head of competition law Asia-Pacific at Tiang & Partners, a Hong Kong law firm providing legal services for GSBN, added that blockchain could cut headcount and wasted paper in the maritime supply chain.

Participants in the GSBN don't need to have a separate set of records any more. "If each party in the supply chain needs a separate copy of all the records, there's excessive duplication."

As to challenges, Huckerby said the primary concerns about implementing the proposed arrangements would be devising the appropriate legal structure, negotiating key commercial agreements, and addressing potential privacy and data security concerns.

Health-code conversion

The Health Code Conversion System between Guangdong province and Macao exemplifies the advantages of blockchain data integrity. Since quarantine-free travel between Guangdong and Macao was allowed in 2020, verifying health-code systems was required for each traveler. However, personal data, especially health information, is not supposed to be directly exchanged between the two different jurisdictions of Guangdong and Macao, making the mutual-recognition mechanism particularly complicated to implement.

A blockchain-based system of mutual health-code recognition was launched for the reopening of the border. More than 200 million travelers have used the portal as an indispensable facilitator for cross-border movement despite the pandemic. When a Guangdong resident downloads his or her health information, it is automatically encrypted and saved on the blockchain network. An encrypted string is generated, linking the URL of the resident's identification data.

Upon receiving the ID and the corresponding URL, Macao authorities can verify it on the blockchain system.

Users don't need to enter their personal information repeatedly on another region's platform.The process is executed backstage, and the health code conversion is made seamless. The average time to receive, convert, and generate the health code for first-time users is 100 seconds, and 3 seconds for subsequent cycles.

Data infrastructure

WeBank, the first private and digital bank on the mainland headquartered in Shenzhen, led the open-source consortium blockchain platform FISCO BCOS in 2017 and has registered more than 3,000 companies and organizations. Fan Ruibin, head of WeBank Blockchain, said cross-border mutual data recognition is problematic in the health care sector because nucleic acid testing results fall under data privacy protection, which can only be verified by local authorities.

He said the blockchain platform can address data protection concerns. The blockchain data integrity can apply to more scenarios, including digital asset proof to open bank accounts, pledges for loans, and to manage personal wealth across the border. "It will become an important information infrastructure, like the Hong Kong-Zhuhai-Macao Bridge," he said.

"When the infrastructure is in place, applications we haven't even thought of will be stimulated. The demand is constrained because of the incomplete infrastructure." Fan looks to the governments in the Greater Bay Area to promote more blockchain projects for wider adoption.

Time and cost savings

Shenzhen-based OneConnect Financial Technology, a fintech service company under Chinese insurance giant Ping An, leverages blockchain in the Greater Bay Area in finance, smart city, and transportation industries. It established a blockchain-based platform for port cooperation with the State-owned conglomerate China Merchants, connecting 21 inland ports and more than 4,000 exporters and importers.

Using the platform, cargo needs be declared and inspected only once between two different customs checkpoints, compared with twice previously, saving 150 yuan ($20.53) to 200 yuan on average per customs declaration order.

Fang Hong, general manager of the south region at OneConnect, said that customs clearance for export was reduced from 4.5 to two days, while the average cargo storage period at terminals was shortened from 5.7 to two days. "The program boosts container turnover and better utilizes the limited cargo storage space," she added.

The efficiency improvements can save energy too. Fang expected the declining delays and logjams to reduce 80,500 metric tons of carbon emissions, along with the consumption of 25,600 tons of oil and 37,300 tons of coal.

Scale for profit

"Many companies and applications have emerged (in the Greater Bay Area), but it has yet to spark rapid industrialization and commercialization," CDI's Liu said. He admitted that profitable consortium blockchain projects are still very rare now, but technology giants are investing heavily into the domain for "the next blue ocean". He believes the sector will incubate breakthroughs in the business world.

The lack of visible payoffs from the high cost of blockchain projects inhibits private-sector industry adoption. Liu said the long-term payback and heavy investment required sees current blockchain applications led mostly by government authorities. Public data protection falls under government jurisdiction, which is another factor requiring the authorities to steer most of the pilot blockchain applications.

Rather than seeking stand-alone blockchain profitability from individual initiatives, Fan at WeBank suggested that "Instead of making revenue directly, we aim to build up the blockchain platform, enable more business partners and explore more applications." Large-scale adoption is a prerequisite for more commercial opportunities, he said. Smart city, supply-chain financing, IP protection, legal records and food-chain tracing are sectors where Fan expects viable investment returns.

Introduced a decade ago, blockchain technology waits for the evolution of the ecosystem around it to mature within industry sectors, along with supportive regulatory facilitation by government authorities. It will not happen overnight.

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